Countdown to 2018: The Year Intel Got Some A.I. Cred

Intel (INTC) regained fans in 2018, as it seemed to renew its relevance via efforts in the red-hot market for artificial intelligence and iPhone.

With only two trading days left in the year, and little in the way of market-moving news to write about, we thought we'd take a look at all 30 stocks in the Dow Jones Industrial Average starting with the worst performer and working our way up to the highest-flying stock in the benchmark. The rankings will shift over the next two days, but the stories behind the stocks shouldn't.

Intel was the 13th best-performing stock among the Dow 30, up 27.5% at Thursday's close of $46.22, though it has still underperformed the Nasdaq Composite Index, up 29.11% for the year.

Intel had a lackluster first half of the year, then made up for lost time stating in July.

One of the proximate causes for the turnaround in the share price were was an upbeat Q2 report on July 27th, which restored faith among bulls the personal computer market would cooperate with Intel. After all, the view of PCs at the start of the year had been “atrocious,” in the words of Cowen & Co.’s Timothy Arcuri.

The other proximate cause was the company’s unveiling, earlier that month, of its newest “Xeon” processor for server computers. That part, and the bold claims about it by Intel’s server guru, Navin Shenoy, helped to ease fears that 2017 would be the year the company starts to give back share in the data center to a revitalized Advanced Micro Devices (AMD).

But there were other things driving the stock beyond those proximate causes. As the second half of the year progressed, people started to look ahead to Apple’s (AAPL) unveiling of the iPhone X, and its sibling iPhone 8, which would be the second round of devices from Cupertino that would feature Intel’s “baseband” modem, taking share from Qualcomm (QCOM), which traditionally had the iPhone wireless modem business all to itself. One analyst, Susquehanna Financial Group's Christopher Rolland, went so far as to opine that Intel could take 100% share of iPhone modems in 2018, as a bitter legal battle continues to unfold between Qualcomm and Apple.

The rise of NAND flash chip prices, where Intel has a partnership with Micron Technology (MU), certainly boosted Intel’s revenue from flash, as was evident in the company’s Q3 report in October.

But the biggest thing that probably changed hearts and minds Intel talking more and more about how it's not be totally outmoded when it comes to the red-hot market for artificial intelligence.

For much of the last couple of years, Nvidia (NVDA) has been the standard bearer for A.I., with its GPU chips finding increasing demand from Alphabet (GOOGL) and others for machine learning tasks and self-driving automobile development.

But Intel in March started to change perceptions a bit, when it announced it would spend $15.3 billion to acquire Mobileye, a chip maker that already had deals with Tesla Motors (TSLA) for self-driving functions. Some skeptics said the deal price was a lot of money for very little gained, this was the turning point for taking a new look at Intel’s A.I. potential.

There started to emerge little nods here and there to Intel’s potential, such as when Morningstar analyst Abhinav Davuluriwrote in September that contrary to popular wisdom, Intel may stand a better chance than Nvidia in parts of machine learning, such as the “inference” stage.

At an October event in New York, Intel flexed its A.I. muscle with a full day of presentations for Wall Street and the media about projects and partnerships in the market for machine learning. And I had an interesting meeting at that event with Amir Khosrowshahi, a vice president and general manager of the "Artificial Intelligence Products Group,” at Intel, who told me that Intel is “leading the way” in A.I. with a forthcoming chip called the "Intel Nervana Neural Network Processor,” formerly known as Lake Crest.

It remains to be seen how the NNN will play out in 2018 against Nvidia and AMD, which can be expected to promote their own A.I. affections.

The debate is still quite polarized, with Vijay Rakesh of Mizuhowriting on Tuesday that things are looking up for 2018, but Rosenblatt’s Hans Mosesmann writing yesterday that there could be a really rough restructuring coming next year, as CEO Brian Krzanich continues to reshape the company around A.I. and memory.

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